Why retailers are looking into stablecoins
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Illustration: Maura Losch/Axios
Major retailers, including Walmart and Amazon, are reportedly considering their own stablecoin offerings as legislation to regulate the instruments moves further through Congress.
The big picture: For big retail, it's the latest opportunity in a long-running hunt to cut billions in costs and days of delays tied to payment transactions.
- Cash transactions cost a retailer nothing. And stablecoins get very close to that.
Between the lines: For merchants, credit and debit card payments carry interchange fees, or money paid to card issuer to process the transaction. The precise fees are an arcane and inscrutable topic, but for huge retailers like Walmart and Amazon, they total in the billions every year.
- In 2021, the Fed found about $32 billion in total interchange fees on prepaid and debit card transactions alone, a number that was growing quickly.
- Stablecoins also settle in seconds, with superior finality to card transactions, which can take days. Large retailers miss out on an astounding amount of interest while waiting for customer money to actually hit their bank accounts.
How it works: Stablecoins are digital assets, running on a blockchain, pegged to the value of a dollar (and backed by cash and cash-like assets, such as Treasuries).
- Holding a stablecoin is like holding actual cash in your wallet. You have it until you run out, then you either have to go get more or earn more.
There are two ways retailers could go about this, both of which were being explored, according to the Wall Street Journal report Friday that detailed Walmart and Amazon's plans.
- Retailers could either start accepting existing stablecoins (such as Circle's USDC or Paypal's PYUSD) or they could issuer their own — individually or as a group.
- If retailers issued their own, they would have an all new source of profit. Like existing issuers, they would get to keep the interest earned on all the money deposited to buy their stablecoins.
Reality check: Payments by stablecoin would be undoubtedly be a win for retailers, but shoppers themselves might take some convincing.
- It would be on companies to find a way to convince customers to hold enough stablecoins to fund their purchases — a task similar to managing a pre-paid debit card.
- That's a hard sell when credit card companies will just pay whatever a customer needs all month long, allowing them to settle up just once a month: The former requires you to estimate what you might spend, whereas the latter lets you pay off exactly what you did spend.
What we're watching: If these retailers end up using stablecoins (a big if in the near term), look for them to manufacture incentives to use them.
- That could mean straight discounts or a points system that can yield rewards down the road. Starbucks has done great at just that. Its app's rewards program has led to customers holding hundreds of millions of dollars with the company, rather than their bank.
- Or retailers could create creative new enticements. For example, Walmart has offered prepaid cards before that included chances to win extra money.
- And of course faster payment rails would work both ways, meaning faster refunds for customers when they return something.
Friction point: The banking industry.
- Money sitting in retail stablecoins or on different kind of apps is money banks don't have to issue loans and make money.
- A "pay with stablecoins" option at online and in-person checkouts would mean instant competition in the payments space, one that's been dominated for a long time by Visa, Mastercard and greenbacks. And banks would also lose out on their earnings from card interchange fees.
- Banks might also get into stablecoins, but it remains to be seen if that business will be as sweet a deal for them as issuing credit and debit cards has been.
The bottom line: Shoppers using stablecoins is a clear win for retailers, but a more indirect win for the shoppers.
